Stocks boosted by data, retail sales

Merck up on Vioxx ruling; crude ends at one-week high

By

MarkCotton

NEW YORK (MarketWatch) -- U.S. stocks ended higher Thursday on a number of strong economic reports and solid sales performance from retailers in October, but a spike in oil prices served as a reminder that inflation and higher interest rates remain a threat.

Merck
MRK, +1.91%
proved a focus for the market, posting the biggest percentage gain on the Dow Jones Industrial Average, on a favorable court ruling over its painkiller drug Vioxx.

The Dow industrials
DJIA, +0.26%
rose 49.86 points to 10,522.59, but came off an intraday high of 10,561.16 after oil surged in afternoon trading.

On the broader market for equities, advancers held a slight 16 to 15 advantage over decliners on the New York Stock Exchange, but led by a wider 16 to 13 margin on the Nasdaq.

Volume was heavy with nearly 2 billion shares exchanging hands on the Big Board, while 2.3 billion were traded on the Nasdaq.

"It's an on again, off again market. There are days when it appears as though the economy and earnings will be strong enough to offset any rise in interest rates and there are days when it does not appear so," said Hugh Johnson, chairman of Johnson Illington Advisors.

"Oil rising took the wind out of the sails of the stock market, and the reason it did is because it helped the argument that inflation and interest rates are a problem."

Earlier in the session, Federal Reserve Chairman Alan Greenspan offered an upbeat view on the U.S. economy, but cautioned that the outlook on inflation remained uncertain, especially for energy prices such as natural gas.

"A colder-than-average winter would stress this market and prices will likely remain vulnerable to spikes until the spring." See full story.

Flurry of broadly positive data

Investors took heart from several positive reports on the economy.

Activity in the U.S. services sector accelerated in October, the Institute for Supply Management said. Its manufacturing index rose to 60% from 53.3% in September. Economists had been expecting a smaller increase to 56.9%, according to a survey conducted by MarketWatch. See full story.

Meanwhile, productivity of the U.S. non-farm business sector surged at a 4.1% annual rate in the third quarter, the Labor Department estimated. Economists had been expecting productivity to rise 2.6% in the third quarter.

Unit labor costs, a key measure of inflationary pressures from compensation, fell 0.5% in the third quarter, the biggest decline since the second quarter of 2004. See full story.

Also, first-time claims for state unemployment benefits fell to levels not seen since Hurricane Katrina struck the Gulf Coast in late August. See full story.

On a less positive note, orders for U.S.-made goods fell 1.7% in September, led by a drop in capital goods. Economists surveyed by MarketWatch had been expecting factory orders to fall only 0.6%. Many investors, however, view September's data as unreliable because of the hurricanes that hit the Gulf region.

Dollar, gold, bonds

In the wake of Greenspan's testimony, the dollar added to gains as his upbeat economic outlook and worries about inflation presaged higher interest rates. Higher interest rates raise the attractiveness of dollar-denominated assets.

The euro was last down 0.2% at $1.1948. Also weighing on the currency, a lack of inflation alarm in an initial post-policy meeting from European Central Bank President Jean-Claude Trichet tossed some cold water on currency market expectations for higher euro-zone interest rates.

Trichet's statement followed the bank's decision earlier Thursday to hold interest rates at 2% as was widely expected.

Against the Japanese yen, the greenback rose above 117 yen for the first time in more than two years. It was last up 0.4% at 117.32. See Currencies

The strength of the dollar sapped investment interest in gold. The benchmark December contract closed down $2.70 at $461.90 an ounce. See Metals Stocks

On the bond market, long-term Treasury prices fell for a third day, sending yields to seven-month highs, as the latest data and Greenspan's comments on inflation bolstered the prospect of higher interest rates moving forward.

The benchmark 10-year note ended down 10/32 at 96 24/32 with its yield at 4.65%, nearing the year's high of 4.68% set in late March. See Bond Report

Crude-oil futures bounced off a three-month low to close at their highest level in a week.

"This is a 100% psychological and technical reaction to having 'held' the $60 level," said Tim Evans, an analyst at IFR Markets. "Fundamentally, there is 10.8% more [Energy Department] crude stock than a year ago and no sign of shortage."

The benchmark December contract was up $2.03, or 3.4% at $61.78 a barrel. See Futures Movers

Merck surges on Vioxx ruling

Shares in Merck
MRK, +1.91%
surged as much as 8.8% to $30.90 after the drug giant won a closely watched liability case filed in New Jersey by a man who suffered a heart attack after taking its recalled painkiller drug, Vioxx.

In a televised press conference, Merck attorneys said that they had prevailed in proving short-term use of the drug does not cause serious cardiovascular problems, and that company behaved responsibly in marketing the drug. The stock closed out the session, up 3.8% at $29.48. See full story.

Pfizer Inc.
PFE, +2.71%
which markets Bextra, a painkiller which is part of the same class of drugs as Vioxx, also saw its shares rise on the Merck news. It rose 27 cents to $21.87.

October surprise in retailers' results

Teen-wear and luxury retailers put in a strong performance in October in what turned out to be solid month for the sector across the board. Read more

In the discount arena, Wal-Mart Stores Inc.
WMT, -0.80%
posted a 4.3% rise in same-stores sales for October. Same-store sales, a widely-used measure of retail performance, tracks sales from stores open at least a year. Looking ahead, the world's largest retailer and a Dow component forecast same-store sales growth of 3% to 5% for November. The company's stock last was up 2 cents at $47.54; earlier it rose 57 cents to $48.13.

Rival Target Corp.
TGT, -0.49%
booked a 5.7% increase in Oct. same-store sales, sending the retailer's stock surging as high as $58.14 before it turned lower. It last was down 48 cents at $56.49.

Among fashion brand retailers, shares in Abercrombie and Fitch
ANF, -1.97%
shot up to a two and half month high after it posted a 31% jump in same-store sales.

Earnings news

On the earnings front, shares in Comcast Corp.
CMCSA, +0.09%
fell 5% to $27.36 after the cable giant posted third-quarter net income that fell short of analyst expectations.

Qualcomm Inc. shares
QCOM, -0.66%
rallied as much as 10% to $44.46, buoyed by an upbeat fiscal first-quarter sales outlook after fourth-quarter results that saw a 37% rise in profit.

The San Diego, Calif. company, which makes most of its money by licensing a wireless-transmission standard used by telecom networks and by selling computer chips that power cell phones, said it targeting sales in the range of $1.67 billion to $1.77 billion for the December ending quarter, versus a Thomson First Call average estimate of $1.66 billion. The stock ended up $3.64, or 9% at $44.02. See full story.

Shares in Verizon Communications
VZ, -0.07%
fell 2% to $30.83 after long-distance carrier MCI Inc
MCIP
which it is in the process of acquiring, reported a 12% drop in revenue in the third quarter. See full story.

Shares in Oracle Corp.
ORCL, +0.38%
closed down 28 cents, or 2.2%, to $12.20. After the close of markets, the business software giant announced its chief financial officer and co-president, Greg Maffei, will step down. Speculation over his status earlier in the session had sent shares down by as much as 5.8%.

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